Platt Perspective on Business and Technology

Meshing innovation, product development and production, marketing and sales as a virtuous cycle 3

Posted in business and convergent technologies, strategy and planning by Timothy Platt on February 27, 2017

This is my third installment to a series in which I reconsider cosmetic and innovative change as they impact upon and even fundamentally shape the product design and development, manufacturing, marketing, distribution and sales cycle, and from both the producer and consumer perspectives (see Part 1 and Part 2.)

I focused in Parts 1 and 2, on a case study example drawn from garment manufacturing in which I explored a set of issues that arise as consumers and product end users see change and innovation differently – and what constitutes significant change or innovation at all. And in that case I focused on a change that for many consumers would not even rise to the level of notable enough visibility to qualify as a meaningful cosmetic change – but that would have innovative change levels of consequences for manufacturers and certainly in their supply chain and parts sourcing, and in how they run their manufacturing lines. I chose a change that manufacturers would want to enter into and embrace because it would lower their production costs and help them remain profitable in an industry that is very competitive for being able to offer the same quality of goods at the lowest possible price points. But at the same time those manufacturers would want this change in what they put into their garments and in what that costs them, to be essentially inconsequential to and even invisible to the consumer and user: their ultimate customer.

I raised the issue of quality control for this change, and the issue of finding and vetting sources of these less expensive- to-manufacturing parts, in Part 2. And in that context, I noted and expanded on the fact that the specific change that I wrote of there, would in most cases only visibly come to the consumer’s attention of it failed to work, or if it broke down and came to so fail too quickly and too easily. The novel, lower cost per unit item change I focused on there was the switch from metal to plastic zippers – not for all garment manufacturers but for a significant segment of them. And in that case, robustness and reliability meant essential invisibility to the consumer – and as a, if not the desired goal for the manufacturer in this, where they could simply pocket their per-garment produced savings and focus their attention and efforts towards new challenges and opportunities.

I turn here, as noted at the end of Part 2, to consider a very different change scenario, intentionally entered into by a business: and it is one that I have come to think of as the “restaurant death spiral” scenario. This scenario in fact has its direct counterparts in other industries, but I first became explicitly aware of it in this context so the restaurant-oriented name for it has stick in my mind for it, as the poster child example of how it can arise. And I address it here in that context.

I will as just stated delve into this scenario here, but to set the stage for it, I offer a further thought on my first, garment industry example first:

• A switch in manufacturing of the type exemplified by my metal zipper to plastic zipper example is one that would be taken very strategically and with long-term thought out plans as to how this would enhance the business and its financial strength, and its competitive position. This is a proactive change and one that would be taken with all of the pre-planning and follow through evaluations that that implies and entails.
• My restaurant example, as I will address it here, is essentially entirely reactive and when a business pursues this type of path, they do so from a short-term, survive-now perspective – and without longer-term strategic consideration of possible or even likely longer term consequences.

What is the restaurant death spiral? It is a phenomenon that I have seen play out quite a few times now and particularly for restaurants that have succeeded, at least modestly but over a period of time. And then the neighborhood changes or they find themselves facing new competition that is drawing away at least a significant fraction of what used to be their repeat-business trade. There are other reasons that can set a business up for this, but the bottom line consequence of all of them is that a restaurant that used to be steadily if perhaps just modestly successful and profit generating, finds itself falling into the red – at least modestly and certainly for what have become its “slow” months – and with prospects of that shift continuing and becoming worse.

• So the owner takes a look at their menu and at what they offer, and at what it actually costs to produce what of that. And they look for places where they can save money from spoilage by for example preparing in advance and freezing meal portions – but without necessarily bringing in the equipment needed to seal those packages airtight, and without necessarily setting up freezer space to limit up and down swings in temperature for food stored there, when their staff has to go in and out of their freezer storage unit all day long.
• And setting aside the issues of freezing servings to reduce spoilage waste and the like, let’s consider some of the other types of decisions that an owner might make under these circumstances. And obvious one is to drop menu items that bring lower profit margins. And another is to “simplify” – simplify and cheapen the list of ingredients that go into menu items offered and sold. Portion sizes can be reduced. And increased emphasis can be placed on building up the areas of the business that do in fact bring in larger profit margins per serving – where a restaurant bar can be their biggest profit center – and certainly on a per sale basis. So they try to sell more beer, wine and hard liquor (assuming of course they have a full product line liquor license when I include all of that here.)
• And they find that their patrons come into their restaurant dining room primarily for the food offered – even if they order from the bar while doing so. Very few go into a restaurant, as opposed to a bar-first establishment that also sells bar food, for the drinks. They order meals and then order drinks accordingly.
• This is a spiral I am referring to, so to continue this narrative. The first month, let’s say, that the business does this, they see basically the same levels of business – and they save a bit from their cost cutting. This adds to their bottom line. But at least a few of those customers leave after having their meal a bit dissatisfied, and it doesn’t matter if this is because a dish they have always liked is not being offered now, or the dish they get doesn’t seem to be as good as it used to be, or because it is notably smaller or what. The change might be in headcount reduction in the kitchen or serving staff too – with that edge of dissatisfaction coming from slower or lower quality service too – and with challenges like meals arriving at the customer table over-cooked from having spent too much time under a heat lamp waiting to be served. The only important point here is that regardless of what change stands out to the customer, they leave feeling they did not get their money’s worth. And this reduces the chances that they will go back there, and certainly as often. And they might tell friends about this change too.
• Basically, the second loop around this spiral is a repetition of the first – but at a lower level down for restaurant performance and with a next cost-savings step taken. I noted a number of possible “savings” approaches that might be taken, at the top of this set of bullet points. Only small such changes and probably just single such changes are taken in any given cycle downward – and certainly at first. I mentioned layoffs in the immediately preceding bullet point; that is likely to be a last-step move unless someone who would probably be let go anyway and with cause, was led to the exit a bit earlier because of profitability problems forcing a hand there.
• Can a restaurant find a way out of this type of downward spiral? Yes, but the key to that is in their owners having a difficult conversation and with themselves if with no one else – where they have to step back from their here and now, admit that their restaurant is in real and deepening trouble – and that it may have to be re-envisioned and reborn,
• And with a new menu – not just a cheapened, corner cutting one,
• Or with a new look,
• Or with a better trained and incentivized staff,
• Or some combination thereof.
• And yes, this can mean rebuilding in ways that capitalize on their ability to cash in on the potential of profit centers like their bar – but once again, if they are first and foremost a restaurant, they need to lead with that, unless of course their business rebirth would mean their turning their venture into a bar or tavern that sells drinks, and that incidentally sells food too. Yes, this scenario is one where a turn around and recover most likely would need at least some change management guidance, and with that starting with a reconsideration of the basic underlying business model too. But my focus here is on the specific scenario touched upon here – and on its restaurants manifestations.

And with that more general framework point raised, my second example here is reactive and with all planning short-term oriented. And the only way out calls for finding a way back to being proactive again and longer-term oriented in thinking and execution.

Think of my garment manufacturing example as an attempt to follow a virtuous cycle pattern in a very competitive industry and marketplace. And think of my restaurant example as one in which a business can fall into a vicious cycle – and one that it is unlikely to survive through long-term if it cannot break out of it. I am going to step back from the specifics of these two scenarios in a next series installment where I will specifically delve into the issues of virtuous and vicious cycles, and knowing what you might be in or entering one of them.

Meanwhile, you can find this and related postings and series at Business Strategy and Operations – 4, and also at Page 1, Page 2 and Page 3 of that directory. And see also Ubiquitous Computing and Communications – everywhere all the time and its Page 2 continuation.

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